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Topic 2 Innovation Models In The Services Driven Economy
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Transcript of Topic 2 Innovation Models In The Services Driven Economy
© 2010 IBM Corporation
Zaheer Travadi – Sr. Strategy & Transformation Consultant | Program Manager – WW STG Run Rate Marketing
Module 6 - Services innovationClosed Vs Open Innovation in the Information and Services driven Economy
© 2010 IBM Corporation2 IBM-SPJIMR – ACPS 2010
Classic linear model of innovation
Powerful, simple conceptualization; useful but not the whole story
Science base => basic research => applied research => invention => prototype => development => commercialization => diffusion => technical progress => economic growth
© 2010 IBM Corporation3 IBM-SPJIMR – ACPS 2010
Example of new drug
Basic research: microbiology Applied research: screening compounds, testing on
animals Invention: lab success Development: clinical trials Commercialization: package, market Diffusion: spreads to doctors and patient populations
© 2010 IBM Corporation4 IBM-SPJIMR – ACPS 2010
Linear model of innovation
– Science base=> basic research=> applied research=> invention=> prototype=> development=> commercialization=> diffusion=> technical progress=> econ growth
Which segments are “innovation”? What purposes served by this model?
© 2010 IBM Corporation5 IBM-SPJIMR – ACPS 2010
Limits of linear model
Feedback loops & backward linkages – Applied research/innovation=> science– Commercialization=> new innovation– Invention/innovation=> science base via improvements
in instrumentation “Learning by doing” in manufacturing
– Chemicals, airframes, semiconductors “Learning by using” user feedback
– Software, skateboards
© 2010 IBM Corporation6 IBM-SPJIMR – ACPS 2010
Uncertainty and chance
Many examples in history of technology of innovations under-appreciated at the time– Laser, radio, computer
Laser (Light Amplification by Stimulated Emission of Radiation)– Invented at Bell Labs circa 1960– Lawyers didn’t apply for patents, not useful – Now used in fiber-optic cables as well as navigation, CDs,
surgery, navigation etc.
© 2010 IBM Corporation7 IBM-SPJIMR – ACPS 2010
Linear model and organization
Linear model => Closed industrial model of innovation: Focused internal R&D, clear firm boundaries, IP rights, virtuous cycles of reinvestment
Examples: AT&T Bell Labs, Xerox PARC
© 2010 IBM Corporation8 IBM-SPJIMR – ACPS 2010
Open innovation
Open innovation: combine external and internal R&D into architectures and systems whose requirements are defined by a business model; blurs boundaries of firm R&D
Examples: Silicon Valley, Hollywood, P&G
© 2010 IBM Corporation9 IBM-SPJIMR – ACPS 2010
Closed v. open innovation
All smart people in the field work for us
To profit from R&D must discover, develop & ship
We can get to market first if we innovate
First company to market will win
If we create most and best ideas, we’ll win
We must control our IP
There are smart people outside & inside
External R&D can add value alongside internal
We need not originate research to benefit
Building better business model more important than first to market
We win if we make best use internal & external
We can profit from others’ use of our IP and benefit from theirs when appropriate
© 2010 IBM Corporation10
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Democratizing innovation
User-centered innovation offers advantages over traditional producer-centered innovation, which concentrates innovation support resources on just a few pre-selected potential innovators
Users can develop what they want, enhances motivation
Users need not develop everything they need; they can benefit from innovations developed and freely shared with others
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User and producer-centered
Economies of scale v. economies of scope (heterogeneous info & resources among users)
Producers integrate themselves into user-centric innovation model – Provide custom production or “foundry” services to users:
faster, better, cheaper; – Produce user-developed innovations commercially; – Sell product-development platforms or sell other
complementary products
For information products, no manufacturer is required & general distribution occurs mainly through communities
© 2010 IBM Corporation12
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Democratization of design
Increasingly capable & cheaper tools that require less skill and training to use
Tools for communication make it easier for user-innovators to gain access to rich libraries of modifiable innovations and components that have been placed in the public domain– Today users design sophisticated new products, services, music
and art– Open source software movement as key example– Web 2.0 explicitly recognizes users add value
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Service innovation: new markets
Market-creating service innovations v. incrementally improved services
– Examples: Cirque du Soleil, University of Phoenix Service v. product innovation
1. Service providers part of innovation
2. Local delivery capacity required for in-person services
3. No physical product to brand
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Market-creating service innovations
1. Flexible solutions FedEx eBay CNN
2. Controllable convenience Google Netflix Skype
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Market-creating service innovations
3. Comfortable gains– Starbucks– Cirque du Soleil– Barnes & Noble
4. Respectful access Ball Memorial Hospital Southwest Airlines Hertz #1 Club Gold
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Typology of service innovation
1. Business model innovation:Substantial change how revenues and profits earned (business model); often accompanied by organizational changes
2. Process/system innovation:Changes in how information exchanged between customer and service provider, bus processes
3. Service product innovation:Introduction of entirely new services
In reality all 3 are interrelated; an iterative process
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Creation networks
“Networks of creation:” hundreds or thousands of participants from diverse institutions collaborate to create new knowledge, learn from one another, and appropriate and build on one another’s work—under guidance of a network organizer.– Rather than protecting and hoarding knowledge, offer to
others to gain access to broader knowledge flows.– Opportunity to jointly create new knowledge and deliver
innovations to market by collaborating closely; long-term, interactive relationships with networks of suppliers, customers, specialists, even amateurs
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Coordination challenges
Three primary challenges in creation process:1. Access and develop highly distributed talent2. Provide appropriate contexts for participants to come together,
collaborate to experiment, tinker, and innovate (least actively managed)
3. Effectively integrate the creations of diverse participants into shared releases (most actively managed)
Central importance of performance requirements and feedback loops to insure continuous improvement
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Product development
An iterative problem-solving (trial and error) process
DESIGN
BUILD
RUN
ANALYZE
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Product development in new era
1. Rapid movement from concept to prototype (rapid prototyping)
2. Define early and frequent rounds of performance tests to learn quickly and adapt designs
3. Establish broad-based communications mechanisms to share performance data
“Managers must move their focus beyond narrow efficiency gains …and embrace the possibilities that uncertainty creates.” J.S. Brown & J. Hagel (2006)
© 2010 IBM Corporation21
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What is Web 2.0? (Tim O’Reilly)
Strategic positioning– The web as a platform (Google v. Netscape)
User positioning– You control your own data (Data is the next Intel Inside)
Core competencies– Services, not packaged software– Architecture of participation (RSS)– Cost-effective scalability – Re-mixable data source and transformations– Software above level of single device (iPod/iTunes)– Collective intelligence (hyperlinks, users as co developers)